New retail markets help AACo's top shelf beef survive China setbacks, COVID-19

AACo premium branded beef strategy is best answer for tough times, AGM told

Agribusiness
Australian Agricultural Company managing director Hugh Killen.

Australian Agricultural Company managing director Hugh Killen.

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Australian Agricultural Company says it is weathering challenging market times by successfully building new retail sales channels for its beef products, and a solid online customer base.

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The Australian Agricultural Company's big beef business is surviving the global coronavirus recession and restaurant lockdowns with "encouraging" customer demand for quality beef.

AACo has also weathered significant uncertainty about its sales to China by diverting beef to new US and Canadian retail opportunities, in particular online sales direct to customers.

Chinese exports accounted for about 15 per cent of the company's beef sales last year, but remain under cloud because most of its product was processed at Australian abattoirs now temporarily banned by Beijing from supplying the China trade.

Managing director Hugh Killen has told the company's annual general meeting the impact of the virus pandemic remained uncertain and "recovery will take some time".

However, AACo was navigating the uncertainty convinced its focus on branded Wagyu beef was already paying dividends and positioning the company well for an eventual return to normal economic activity.

Rapid change of plan

He said all 16 of the company's international food service markets were impacted in some way by coronavirus by mid-March, but AACo had managed to respond rapidly and divert its premium-priced beef away from the collapsing restaurant trade to retail channels.

It also began identifying new retail opportunities and sales channels going direct to customers.

In the US its high-value flagship brand, Westholme, had sold "particularly well" via online platforms.

We deliver the right cuts at the right time to capture every possible dollar of value, even amid unprecedented global food service and retail sector uncertainty - Hugh Killen, AACo

"We have also been moving product through the e-commerce platform of our Midwest distributor `Meat by Linz' and our team has placed Westholm with a growing list of gourmet butchers throughout the US," he told shareholders.

Piggybacking onto North American brands, AACo had also swung substantial volumes of product previously destined for China, or the hotel and restaurant trade, into large retail chain stores in Canada.

Mr Killen said the diversion strategies involved in transitioning beef lines from one market to new buyers was a big job.

But despite different customers and product expectations, the shift had been achieved with minimal disruption to the company's cattle backgrounding, feeding and export chain activities on 26 stations, farms and feedlots back in Australia.

"Our teams have been able to slow down or speed up animal movements and adjust animal weights as required," he said.

"This means we deliver the right cuts at the right time to capture every possible dollar of value, even amid unprecedented global food service and retail sector uncertainty."

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He told this year's virtual AGM, which replaced the company's usual physical meeting in Brisbane, AACo had more to do to create a simpler, more efficient business, but the past year's efforts had been critical to the success of its branded beef marketing strategy and how it responded to and navigated the COVID-19 disruption.

"Our progress before COVID-19 made us stronger in facing the pandemic and the work we have done in 2020 has positioned us well for the post-coronavirus economic environment," Mr Killen said.

"I thank my team for their work in putting AACo in this good position."

He said for too long parts of the 196-year-old agribusiness had focused on doing what they did in isolation in different areas of the company, then left open the task of seeking out markets to buy the beef AACo had produced.

Fit the market first

Today's goal was to target market opportunities first, then align the business to produce the right products at the right time to meet those opportunities.

In May AACo reported it had bounced back from 2018-19's $23 million loss to post a full-year underlying operating profit of $15.2m for 2019-20.

Although drought continued to create challenges, forcing destocking across the company last financial year, and overall meat sales were below 2017's $384m when AACo also sold non-Wagyu beef, chairman Don McGauchie insisted AACo's move to branded Wagyu-based beef was "the right strategy for our business, in good times and challenging conditions".

Wagyu sales lifted 20pc to $225m in 2019-20 and the price per kilogram of beef sold grew 8pc overall.

As customers return to food service and fine dining I'm confident retail sales channels will remain healthy and our new direct sales channels will remain a feature of our industry - Don McGauchie, AACo

Double digit growth in Wagyu product sales was largely achieved by the accelerated roll out of the Westholm brand in more than 20 cities from Europe to Asia, and in Sydney, Melbourne and Brisbane.

"Customer demand for quality beef and for our brands has remained in recent months," Mr McGauchie said.

"I have been encouraged by positive demand across our retail channels and by growth in direct to customer sales,"

"As customers return to food service and fine dining I'm confident retail sales channels will remain healthy and our new direct sales channels will remain a feature of our industry."

AACo confirmed it had not replaced almost 20pc of its herd lost to flooding in early 2019, or culled because of drought and the focus on Wagyu production.

Total herd numbers were now just below 350,000.

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The story New retail markets help AACo's top shelf beef survive China setbacks, COVID-19 first appeared on Farm Online.

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